Lessons in creating a success story
11 April 2016: The good, the bad and the occasionally ugly…the decade-long development of Australia’s globally significant liquefied natural gas (LNG) industry has presented a raft of success stories, issues and challenges that have tested the best local and global players.
But according to a new Deloitte report, innovation and collaboration remain at the core of the sector’s success as Australia, with over AU$200 billion in new and existing projects, emerges as the world’s largest LNG exporting nation.
The good, the bad and the ugly: The changing face of Australia’s LNG production features interviews with 10 Australian LNG leaders who have either been involved directly in managing these projects, or who have a broad industry view through their roles as consultants or advisors.
They provided candid insights into what they’d do differently if they could; what the industry must never do again; and what leading practices have emerged that, in their views, should become part and parcel of any LNG project going forward.
Successful practices to repeat include:
- Stimulate innovation and embrace new thinking: Industry-leading innovations have paved the way for further development of unconventional deposits around the world. The oil and gas industry is a high-tech industry and innovation will always be critical to ongoing viability and prosperity
- Focus on employee conditions and engagement: Pioneering the use of technology to improve work conditions has given employees and their families greater opportunities to live in desirable locations
- Amass an excellent record on health, safety and environmental performance: Oil and gas companies have collaborated to maintain the integrity of gas infrastructure and preserve local environments and property, often exceeding government standards.
Practices that should be done differently:
- Better manage the implications of concurrent projects: The consequences of several independent projects prosecuting a similar resource in parallel and a failure to collaborate in some instances has led to a dramatic over-building of infrastructure
- Take a long-term, collaborative approach to working with local communities: Addressing health, safety and environmental concerns early could have reduced additional regulation
- Build a trading function from the outset: A relatively new proposition for the industry, learning curves can be shortened by soliciting input from other sectors, such as power and mining, which have already developed robust trading mechanisms
- Manage contractors more effectively: Defining the project scope tightly, processing change requests quickly, resolving discrepancies promptly and having the right team in place to manage contractors with more diligence are all critical.
Practices the industry must never pursue again include:
- Getting swept up in groundswells of enthusiasm and “get it done at all costs” mentalities: Establishing a productivity-based culture and focusing on asset efficiency is imperative. Smaller-scale projects, using brownfields and existing infrastructure, or thinking innovatively about leveraging existing transport methods, can all help avoid cost escalation and schedule over-runs
- Underestimating the industry’s collective impact on local markets: The industry must think very carefully about the long-term impact of its activities on local markets for labour, equipment and services. There may be instances when companies could work more closely with government agencies and unions to avoid uncontrollable cost escalations
- Using legally driven frameworks as primary methods for assuring access to the resource: A detached approach can easily backfire. The right alternative is to be a friendly and approachable neighbour and approach land-owners and other stakeholders as partners in business
- Going it alone: Competition is global, not local. Developers could have shared more infrastructure to minimise costs and better position them to compete more effectively with the rest of the world.
Geoffrey Cann, Deloitte Australia’s National Director, Oil and Gas said: “Australia is about to become a true LNG superpower, and the local sector has a great deal to be proud of.
“No nation has ever attempted to stand up 10 LNG projects consisting of 15 LNG trains at the same time, and likely none ever will again. Australia leads the way with a diverse range of project configurations and future possibilities.
“The scale of this build-out would be impressive under any economic conditions, but it’s particularly notable considering it occurred at a time when many companies and governments had curtailed capital spending in the wake of the global financial crisis.
“The journey hasn’t always been plain sailing. Australia’s LNG industry has encountered a number of challenges, including some of the highest costs in the world, low productivity and significant social license concerns along the way. It certainly offers valuable lessons for other global geographies or any other rapid growth resource development.”
Taking innovation and collaboration to the next level
Industry leaders interviewed repeatedly stressed that project owners could benefit the most from finding new and better ways to collaborate and innovate. In some instances, things that haven’t gone as well as planned for LNG developers in Australia could have been avoided through greater cooperation and a more standardised approach.
Jamie Hamilton, Deloitte Consulting partner, Oil and Gas said: “The industry is acutely aware of what it needs to do better and that there is also plenty of room to innovate further.
“But companies must go beyond operational innovation for the industry to survive the current oil price downturn, and for proposed projects elsewhere to proceed successfully. This means innovating in areas such as community relations, human resources, general and administrative processes, supply chain and procurement, taking a fresh approach to labour negotiations and contract structuring.
“Innovation also extends to collaboration. New means and ways are sorely needed for working together, sharing knowledge, and inviting input from other sectors, as well as suppliers, service providers, and government.
“While regulatory and policy conditions differ greatly around the world, a first step to greater collaboration simply involves a change in perspective, from viewing an LNG project in competitive isolation, to seeing it as part of a vibrant, global energy ecosystem.
“The long-term outlook for LNG is bright as the world continues to shift toward cleaner forms of energy, and particularly, for example, greater flexibility in delivery quantities, floating LNG, spot markets and demand-side developments play their role.
“The current oil price downturn, while painful, could be a blessing in disguise since it is motivating operators to learn from the past and to innovate for the future which, in combination, could take the sector to new heights.”
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